By Antony Mutunga
Imagine being able to own a faction of buildings such as Kenyatta International Convention Centre (K.I.C.C), Sarit centre or Greenspan mall. This dream of many may soon become a reality thanks to the introduction of Real Estate Investment Trust (REITs) in Kenya.
As Kenya’s economy grows so does its property sector necessitating the need to innovate and enhance management in the sector to international standards. The establishment of REITs will interest a lot of potential investors to the country, as it is one of the best investments being used in countries like United States of America, United Kingdom, Australia, South Africa and Singapore.
A REIT a security that mainly invests in different types of properties and often trades in security exchanges to make profits mostly in the long term. It offers real liquid stake to investors in real estate having tax considerations and high returns.
“REITs can be described as when a group of people pool funds together to invest in real estate,” says Lucy Kamau, a Kenyan real estate consultant. REITs, she adds, are sub-divided into three categories; income, development and sharia REITs.
According to Wilson Tan, CEO Capital Mall Trust Management Limited, REITs are a new asset class, which is more like a bond that is risk free but yields high returns for instance, the government bond and an equity, which has some risks. The asset class is sandwiched between the two as it provides dividends to investors and at the same time has a possibility of risk. This leads to the possibility of growth in the sector.
Felix Gichaga, Stanlib Kenya’s Business Development Manager says that the REIT offers investors diversification from standard equity and bond products. It enables ordinary investors, he adds, to get low-cost exposure to income-generating real estate assets.
The Capital Markets Authority (CMA) gave its approval for the first REIT by Stanlib, Stanlib Fahari I-REIT, on October 2. Categorized as an income REIT, it will pool in money from investors in exchange for issuance of units. The units of the REITs will be listed in the Nairobi securities exchange and traded as securities. Other companies have also started to try and launch their own REITs; these companies include Centum Investments and Fusion investment management limited.
The Stanlib Fahari I-REIT has several guidelines, for instance, the minimum number of shareholders it can have is 100; also seven or fewer shareholders cannot own 25% of the units and 75% of the gross income of the investment must be acquired from the real estate. The minimum investment Kenyans can make is Sh20, 000, which are 1,000 units at nominal price of Sh20. The offer lasted till November 18. The REIT was listed on November 26 at the Nairobi Securities Exchange for trading.
Commenting on the offer, Anton Borkum, Stanlib Fahari I-REIT CEO said he was glad they were introducing the landmark initial public offer (IPO), which was the first of its kind in Kenya and they will be offering both retail and institutional investors a stable income stream with long-term growth and capital appreciation through the Fahari I-REIT.
Speaking at the launch, James Muratha, Stanlib East Africa regional director said that Stanlib Kenya was excited to be part of the constant evolution in the African capital markets and to empower investors. He also said that they were proud to be a contributor to the growth of the property sector and importantly, the economy.
According to Lucy Kamau, once Stanlib Fahari I-REIT gets the funds from the public, they will first inject the money collected into cash investments (liquid investments e.g. treasury bonds). At the same time they are in the process of acquiring income-generating properties. They have for instance, purchased the Greenspan Mall at Donholm.
Stanlib have promised investors in their prospectus that in two years they will put up 75% of their portfolio to be converted to real estate properties and 25% will remain in cash. 80% of income generated from the properties will be redistributed among the investors at the end of each year and as the properties appreciate, it will lead to more income generated hence more dividends for the unit holders.
Many of the investors interested would be concerned if the Fahari I-REIT would be able to acquire the same income one would get from the real estate investments? In the investment plan one can derive returns from income generated in terms of dividends and from capital gains from exchange of units in the securities exchange.
The investor also benefits in terms of tax considerations, as the only tax paid is the withholding tax when the dividends are being distributed. The other benefit is transparency, due to regulations by CMA and from a diverse panel of professionals for example, Co-operative bank who will act as the trustee and CFC Stanbic bank, which will be the receiving bank.
Since this is a new venture in the real estate sector investors, despite high dividend prospects, should be cautious. The same notion goes for the real estate investment trusts as it highly depends on management and the market economy. If the governance takes a turn for the worst it would lead to the investors of the REIT making loses. The market economy is also a major factor that investors should consider before jumping on to the bandwagon as it fluctuates from time to time. This will cause the REIT to appreciate and depreciate accordingly.
Peter Lynch, a businessman and stock investor says, “Never invest in any idea that you cannot illustrate with a crayon.” Investors should heed his words and understand that before investing in REITs, they should get all the necessary information first and consider if it is a worthy investment plan to partake in the real estate sector.
